What is the difference between Trust, Society and Section 8 Company?

Comparision between Trust, Society and Section 8 Company

Any person or persons who are willing to establish a Non-Profitable organization can form any of the 3 organizations namely, Trust, Society and Section 8 Company. All 3 organizations are set up to render community and social services with the common aim i.e public welfare and charitable purposes. These 3 organizations are established and governed under different laws. Thus, the main objective of these organizations may be similar but they are substantially different from each other in terms of nature, governing documents, scope and functioning.

In this blog, we will discuss the meaning and major differences between the Trust, Society and Section 8 Company.

 

What is Trust?

Trust is an agreement entered into by 2 or more persons whereby one of the parties hands over the ownership of the property for the benefit of a third person to the other party. It can be either Private or Public. There are following three parties in the trust –

  1. Trustor – Person who hands over or transfer the ownership of his property
  2. Trustee – Person to whom the ownership of the property is transferred
  3. Beneficiary – Person for whose benefit the trust is created

Trust is an ideal NGO structure in following cases –

  1. When the family members or more than one family member are involved in running such NGO.
  2. When more privacy & flexibility and less transparency in business is needed then Trust is more appropriate NGO structure.
  3. It is preferred when the trustees are required to hold office for long or lifetime without any elections. Thus, it reduces the risk of takeover by any persons who are not approved by the trustees.

 

What is Society?

A Society is a type of NGO which is formed by atleast 7 persons for any literary, scientific, or charitable purpose or any other purpose prescribed under Section 20 of The Societies Registration Act, 1860.

Society is an ideal NGO structure in following cases –

  1. Society is mostly preferred when the elected body is required for managing the business affairs. It makes the business operations transparent.
  2. It can easily be dissolved whenever the members of society wish to dissolve it.
  3. When there are atleast 7 persons who wish to run a NGO with no corporate compliances then society is most appropriate.

 

What is Section 8 Company?

Section 8 Company is a type of company registered under section 8 which is formed for charitable or any non-profitable purposes prescribed under the Section 8(1) of the Companies Act, 2013. It enjoys all the benefits of private limited company such as Limited Liability, separate legal existence, common seal and so on and likewise it is subjected to all the obligations of private limited company.

Section 8 Company is an ideal NGO structure in following cases –

  1. Section 8 Company incorporation is the most appropriate for those who want to run a NGO in the format of company.
  2. It is the most transparent and reliable business structure in comparison of above 2 for stakeholders as it is licensed by the Central Government.
  3. It allows undertaking the wide range of activities for charitable purposes and public welfare.
  4. It required no minimum capital to start the business.

 

Key difference between Trust, Society and Section 8 Company

BASIS

TRUST

SOCIETY

SECTION 8 COMPANY

Governing Law

The Trust Act, 1882

The Societies Registration Act, 1860

The Companies Act, 2013

Definition

Section 3

Section 20

Section 8

Registering Authority

Registrar of Trusts

Registrar of Societies of State

Registrar of Companies

Minimum Parties/Members

2 Parties to the Agreement

7 Members

2 Members & 2 Directors

(Members can also be the directors)

Managed by

Trustees

Council or Managing Committee

Board of Directors

Mandatory Annual Compliances No Requirement It is required to annually file a list of the Names, Addresses and Occupations of the members of Managing Committee or Council with the Registrar of Societies.

 There are various annual compliances that a Section 8 company must ensure. List of such Compliances –

1.     Annual return

2.     Financial Statements

Statutory Audit

Not Required Mandatory

Mandatory

Jurisdiction of operations

Whole of India State-wise. However, it can work in whole of India by taking All India Registration. Whole of India
Fundamental Documents    

Trust Deed

Memorandum of Association

·        Memorandum of Association

·        Article of Association

Legal tile of Property

Is vested on the trustees Is vested on the Society itself Is vested on the Company itself
Transparency Comparatively low Comparatively low

Comparatively high

 

From the above comparison, we can conclude that Section 8 Company is best structure for running a NPO or NGO as it enjoys all the benefits limited company. Moreover, it is transparent and reliable structure. However, section 8 company is costlier among all the three NGO structures so Trust and Society can be preferred from economic standpoint, easy formation and maintenance.

In case of any further question or concern Contact Your Trustworthy Advisors Manthan Experts by dialing at + 9643-969-969 to choose the most ideal NGO structure as per your needs.

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Knowledge Source:

What You Should Know As A Company Director?

INC 20A Commencement of Business Certificate Late Fees Explained

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